Keep a Contingency Fund for Surprises

Several of my posts have echoed the theme of keeping a contingency fund to protect yourself against unbudgeted expenses. But it is so important that I’m going to elaborate.

The Unforeseeable and Cost Overruns

Protect against costly surprises by keeping a contingency fund

No matter how vigilant you are, building a new home always produces a few surprises. Unfortunately, these surprises often result in additional expenses. When they appear you might be tempted to blame someone, but it is not possible for everyone to foresee everything. For example, after the general contractor (GC) begins excavating for the foundation, he might discover that your property contains an underground spring exactly where you want to put your home. To prevent a wet basement, you will need to take some costly and unbudgeted precautions. Unless you had the GC dig a test hole in this area before he finalized his contract with you, neither of you could be expected to have anticipated the problem.

Mistakes and Cost Overruns

There are other sources of cost overruns than the unforeseeable. Failing to read your building specifications closely is a common source. It can cause your home to be built to specifications you do not want and to be missing features you expected to receive. Correcting either type of mistake will add to your expenses. Your contract may include allowances for some preconstruction tasks that are insufficient to cover the actual costs when they are later determined. This could include, for example, completing a property survey or paying for the utility hookup or building permit. If you discover you need to complete these tasks after closing on the construction loan, the dealer and GC will need to stop what they are doing until you come up with the money to complete the tasks.

Other Sources of Cost Overruns

You may be forced to absorb additional costs if you change your mind and, for example, decide you want hardwood flooring instead of carpet. In other cases, a town official could be responsible for your additional costs. For example, the building inspector may require your GC to complete some costly additional work that is not included in his contract because it is not mandated by the building code. You may also incur additional financing costs should the project be delayed by inclement weather, material shortages, or subcontractor scheduling conflicts. Your GC may or may not charge you for these problems, but your lender will almost certainly require you to pay additional interest if you are financing your home with a construction loan.

Plan for Surprises by Creating a Contingency Fund

The complexity of building a home presents so many opportunities for mistakes that it is best to simply plan for them. Although you cannot budget specifically for what you cannot foresee, you can create a contingency fund to protect yourself against unbudgeted expenses. For a modular home, 3 percent of your modular and GC expenses will probably suffice. You can keep a reserve of cash for the contingency fund or ask your lender to include a contingency fund as a budgeted line item in the construction costs. Some lenders will do this even if you do not ask, and even if you do not want them to; many lenders only require this for stick-built homes, since they are historically more prone to sizable cost overruns.

How to Create a Contingency Fund

If your total construction costs already bring you to the maximum amount the lender will give you plus your down payment, the only way you will be able to create the contingency fund is to eliminate other expenses. The best way to handle this situation is to eliminate something you can readily add later. If you get lucky and avoid drawing from the contingency fund during the project, you can spend the money on the eliminated item. If you are forced to tap into the contingency fund, you will spend money you undoubtedly hoped to save, but you will not be forced to come up with money you do not have.

Blog Updates

Google Reviews

The Home Store was very helpful. They detailed what I was getting and then itemized the prices. They gave me a detailed list of the tasks I’d need to do to complete the contracting work, something very few companies do. Also, they did a good job correcting a couple of warranty items. I’d definitely buy a home again from them.read more

I have known and work with The Home Store for a very long time. The owner Andy Gianino is a one of the most passionate and knowledgeable individuals I know in the home building industry. They do a wonderful job!read more

We are nearing completion of our new home on Cape Cod. The Home Store has provided excellent service from helping to modify the layout of our open space modular home (including my dream kitchen) to drop setting the modular sections on the foundation. A snafu was encountered, through no fault of The Home Store, when the original manufacturer, Excel, went bankrupt, just before the manufacture of our home was to start. The Home Store stepped up and demonstrated their strong customer service by finding a new manufacturer who could construct our original design with only a short delay and by paying to correct errors by the new manufacturer. I recommend The Home Store highly!!read more

I have worked with Andy and the Home Store for many years. His product and industry knowledge is second to none. His attention to detail and his desire to stand behind the product is a true testament to him and his entire team.read more

What an incredible first time experience with The Home Store. As a Development Company, we had decided to try to replace an existing home, that was in much needed repair with a modular home. The Home Store's staff, particularly Dave Lewis were all OUTSTANDING! The process was totally turn key and simple. All changes that we wanted to make to the house was accommodated. The finished product was of high quality and more importantly delivered on time. Modular homes have come so far that they are hard to tell the difference from a home built on site. I would also add that the quality is all as good as a custom home without any headaches trying to find sub contractors to complete the process.You owe it to yourself to check out The Home Store if you are thinking of building a new home.
PS: Check out The Home Store blog and you can see the finished product of the home we purchased, The Wiltshire T-Cape Home.
Thanks again to everybody's effort at The Home Store!read more

I have seen some of the homes being sold by The Home Store and can say I am proud to be a partner with them. The efforts in detail by The Home Store that go into the sale, design, manufacturing and completion are unmatched in this industry. Patrick and Dave are very professional sales people with the knowledge you need to design the true Custom Modular Home.read more

About Andy Gianino

Andy Gianino is the president of The Home Store, a builder of custom modular homes in the Northeast. Andy’s PhD in psychology has helped him develop a strong customer service approach to selling modular homes.

The Modular Home Book

“If you are thinking of ‘going modular,’ this could be your primer: it covers all the steps of the process and features a 16-page color insert that helps you visualize the possibilities.”